Reporting Reminder 2020

CRS

Important changes in brief

• In addition to account holders resident in jurisdictions that were reportable for tax year 2018, from tax year 2019 on, Swiss financial institutions must also report all account holders resident in countries having an AEOI Agreement in force since January 1, 2018. You can find a list of these states on the SFTA website.

• Starting January 1, 2019, countries that have no AEOI Agreements with Switzerland but that have signed a commitment to implement the AEOI vis-à-vis the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes are no longer considered participating jurisdictions for CRS purposes. Therefore, professionally managed investment entities situated in  countries with which Switzerland has not entered into AEOI agreements will not qualify as financial institutions anymore but have to be treated as passive NFEs instead. Therefore, such companies and their controlling persons must be included into the CRS reporting for tax year 2019.

Periodic filing requirements

Swiss financial institutions must report CRS data to the Swiss Federal Tax Authority (SFTA). To do so, Swiss Reporting FIs must register on the Swiss registration and filing portal (My Tax World).

The reporting FIs must transmit the reportable information to the SFTA by June 30, 2020 the latest.

The reporting FIs registered with the SFTA, regardless of whether they maintained reportable accounts in the respective calendar year or not, must submit a reporting file to the SFTA. If the reporting FI did not have any reportable accounts, a nil reporting is required.

The reports must be filed according to the SFTA technical instructions.

Additionally, the SFTA has released a data transmission guide outlining technical specifications on how to transmit data to the FTA.

The data can be filed in three ways:

1. Upload of XML-file via MyTaxWorld (XML Data-Upload)

2. Manual data entry via MyTaxWorld (Online form)

3. Machine-to-machine webservice interface (M2M)

If a FI chooses the third way, the interface must be activated first. The reports cannot be filed in paper form.

Should you seek assistance in preparing the CRS reporting, please do not hesitate to contact us.

FATCA

Important reminders in brief  

• Reporting on accounts held by Non-Participating FFIs

  We would like to remind that since the FATCA reporting for tax year 2016, Reporting Model 2 FFIs that reported Non-Participating FFIs as part of their non-consenting reporting are not required to report such accounts anymore.

• Reporting Model 2 FFIs reporting on non-consenting U.S. accounts

  For preexisting accounts that are non-consenting U.S. accounts reported by Reporting Model 2 FFIs, the following pooled reporting categories should be used:

  • Category “recalcitrant account holders that are U.S. persons” or

  • Category “recalcitrant account holders with U.S. indicia”.

For cases where a newly opened individual account has a change in circumstances that causes the original self-certification to be incorrect or unreliable, and where the Reporting Model 2 FFI is unable to obtain a valid self-certification establishing whether the account holder is a U.S. citizen or resident, the pooled reporting category “recalcitrant account holders with U.S. indicia” should be used.

• Identifying numbers for paper Forms 8966

  A unique identifying number must be assigned to each Form 8966 filed on paper. Starting with 2018, the three-digit identifying number must be entered in the box for “Identifier” at the top of the form.

Periodic Filing Requirements

Swiss Reporting Model 2 FFIs have the following two reporting deadlines for the reporting year 2019:

• January 31, 2020 for the aggregated reporting of non-consenting U.S. accounts

• March 31, 2020 for U.S. accounts with consent to report

It is within the responsibilities of the FFI to perform the 8966 FATCA reporting, and a delegation of the responsibility to a custodian is not possible.

As a Swiss Reporting Model 2 FFI, the 8966 FATCA reporting is performed electronically through the International Data Exchange Service (IDES). The FATCA XML Schemas and Business Rules for Form 8966 and the publications contained therein provide guidelines to meet the FATCA reporting requirements.

Please be reminded that the certificates used for the encryption of FATCA XML-files may expire: Before starting to prepare your 8966 reporting please verify that your certificates are up to date.

Should you seek assistance in generating the FATCA XML-file or the encrypted file to be submitted onto IDES, please do not to hesitate to contact us.

FATCA Group Requests

In addition, the aggregated reporting of non-consenting accounts may result in a group request from the U.S., which, in turn, may require a Reporting Swiss Financial Institution to transmit account data to the SFTA. The data and documentation needed to be sent to the SFTA additionally include a SEI-XML file, a FATCA-XML file and further documentation in pdf format. More information can be found in our newsletters “U.S. Senate Approval of Amendment to the DTA - FATCA Group Requests” and “Important Updates and Dates for the Implementation of the Regulatory Requirements for 2020” or on the website “Administrative assistance to FATCA“ of the SFTA.

For more information, please contact us. PQS can provide all types of support in preparing the FATCA group request information packages.

Extension Request

To request an automatic 90-day extension of time to file Forms 8966 to report consenting accounts, use Form 8809-I. Please note that Swiss Reporting Model 2 FFIs cannot request an extension of time to file Form 8966 to report non-consenting accounts.

QI

Important changes in brief

Form 1042-S

• New income code 

  A new income code, 55, was added for taxable death benefits paid on a life insurance contract.

• New checkbox 7c to indicate a subsequent year of partnership withholding

  A new box was added for partnerships which signed a withholding partnership agreement with the IRS to indicate if withholding with respect to a partnership interest occurred in the subsequent year. This change has also a small impact on the reporting duties of a QI: When filing 1042-S form electronically, a QI  will be required to enter 0 in field 999 to indicate that it is not a partnership reporting that withholding of partnership interest occurred in the subsequent year.

• Reminder: U.S. Payee Pools

  Please be reminded that forms 1042-S for payments paid out to Chapter 4 U.S. Payees Pools (accounts held by U.S. persons) must be filed. These forms are usually reported with the chapter 4 exemption code 18 (U.S. Payees of participating FFI or registered deemed-compliant FFI) and the recipient code 48 (U.S. Payees Pool).

Form 1042

No final instructions for Form 1042 were available at the time of this reporting reminder. This information is based on the draft instructions.

• New Schedule Q (Form 1042)

  If a QI or any its branch is a Qualified Derivatives Dealer (QDD), the taxpayer must attach to the Form 1042 a Schedule Q (Form 1042), Tax Liability of Qualified Derivatives Dealer (QDD), for each QI or its branch that is QDD. The QI must file Form 1042 and must complete and attach Schedule Q (Form 1042) for each QDD, even if the QDD has a tax liability of zero. The new Schedule Q (Form 1042) replaces the previous requirement to attach a statement to the Form 1042 to provide information regarding a QDD's tax liability.

• Adjustments to overwithholding under the reimbursement and set-off procedures

  A withholding agent may make adjustments to overwithholding using either the reimbursement or setoff procedures until the extended due date for filing Forms 1042-S, unless the Form 1042-S has already been filed or furnished. Additionally, a withholding agent may use the extended due date for filing a Form 1042 to claim a credit for any adjustments made to overwithholding.

• Rounding

  Withholding agents are newly required to round amounts so that only whole dollar amounts are reported. Amounts with 01 to 49 cents are rounded down, while amounts with 50 to 99 cents are increased to the next dollar.

• Potential Section 871(m) transactions

  Please be reminded that Section 3 of Form 1042 applies to payments made by a withholding agent under any potential section 871(m) transaction (rather than just payments made under notional principal contracts or other derivatives contracts that reference a U.S. stock or underlying security). If you are acting as withholding agent for amounts treated under Section 871(m) (usually under Income Code 40), you should check the Box in Section 3.

Filing Forms

You must file the Form 1042-S and 1042 reporting with the IRS by March 16, 2020. You have the option to request an automatic extension of time to file (see below).

You must file Forms 1042-S electronically as a .txt-file through the FIRE system. You can find the specifications for the electronic filing of Forms 1042-S for the tax year 2019 in Publication 1187.

Form 1042 must still be filed on paper. You may be required to attach copies of forms 1042-S received by upstream withholding agents. For filing Form 1042, please use the following address:

Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409
USA

Be sure to retain proof that you mailed the tax forms on time. By having proof of filing you can avoid late filing penalties. If you are using a private delivery service (e.g. DHL, FedEx etc.), you can use the following street address:

Ogden - Internal Revenue Submission Processing Centre
1973 Rulon White Blvd.
Ogden, UT 84201
USA

Should you seek assistance in generating the electronic file, please do not to hesitate to contact us.

Extension Requests

For an extension request to be accepted you must file it with the IRS by March 15, 2020 for Forms 1042-S and by March 16, 2020 for Form 1042.

For an automatic 30-day extension of time to file Forms 1042-S, use Form 8809. Please note that by filing 8809 you cannot extend the deadline for providing recipient copies, if you are required to file recipient-specific reporting. You may request an extension of time to provide the recipient copies by sending a letter to the following address:

Internal Revenue Service

Information Returns Branch

Attn: Extension of Time Coordinator

240 Murall Drive, Mail Stop 4360

Kearneysville, WV 25430

The letter must include (a) your name, (b) your TIN, (c) your address, (d) type of return, (e) a statement that your extension request is for providing statements to recipients, (f) reason for delay, and (g) the signature of the payer or authorized agent. Your request must be postmarked by the date on which the statements are due to the recipients. If your request for an extension is approved, generally you will be granted a maximum of 30 extra days to furnish the recipient statements.

For an automatic 6-month extension of time to file Form 1042, use Form 7004. Please note that by filing Form 7004 you cannot extend the time to pay your taxes due. The deadline to pay your taxes remains unchanged.

You can complete and submit both forms online and file to the IRS electronically as follows:

• Filing of Form 8809 through the FIRE System at https://fire.irs.gov.

• Filing of Form 7004 through the Modernized e-File (MeF) platform.

1099 Reporting

We would like to remind you that QIs must continue to apply backup withholding on undocumented U.S. accounts under chapter 61 on reportable payments, if applicable, for the period during which an account is treated as undocumented U.S. account. As a result, you as QI, in certain cases, may still have to make sure that the 1099 reporting for QI purposes is performed.

For cases where you have to file a 1099 reporting, you must meet one of the following deadlines depending on what and how you submit:

• February 15, 2020 for filing Forms 1099-B, 1099-S and 1099-MISC (if amounts are reported in box 8 or 14)

• February 28, 2020 for filing your 1099 reporting (except those mentioned above) on paper or

• March 31, 2020 for filing your 1099 reporting (except those mentioned above) electronically through the FIRE System.

Please note that the 1099 reporting on paper cannot be performed using the downloadable PDF. Copies 1, B, 2 and C can be filled out online in a pdf format. You must file the original 1099 paper forms which you have to order from the IRS. Should you require original paper forms for the 1099 reporting, they can be ordered from the IRS or directly from us.

For a 30-day extension of time to file Forms 1099, use Form 8809. You must file Form 8809 electronically through the FIRE system no later than February 28, 2020 (if you file Forms 1099 on paper) or March 31, 2020 (if you file Forms 1099 electronically).

Please remember that it is the primary responsibility of the QI to ensure that the 1099 reporting has been performed, even if the reporting has been delegated to a custodian. Should your custodian fail to report as required under the QI agreement, you must report your reportable payments to U.S. persons directly to the IRS.